China in Africa: The Real Story

Is China a developing country? With all the hype about China's rapid rise, many seem to believe that China is now a "developed" country, like those in North America and Europe, and should follow the same rules as the rich countries. Steven Pearlstein put the case recently in the Washington Post:

As a developing economy, it was entitled to a grace period from the normal rules of global commerce as it transitioned from state control to open markets. But with China's extraordinary success, its grace period has now run its course.

The normal rules would mean things like allowing its currency to float freely, liberalizing trade, or adhering to the rules and regulations developed by the Organization for Economic Development and Cooperation, the club of 30 industrialized countries established in 1960 that has welcomed a handful of formerly "developing" countries since then, including Mexico (1994), Korea (1996) and Poland (1996).

But what makes Pearlstein think that China's extraordinary success has now brought it out of the developing country category?

According to the World Bank, developing countries fall into either "low income" or "low middle income" or "high middle income" categories, when their total national income is divided by their total population to give per capita gross national income (GNI). The most recent data we have on GNI is from the World Bank, for 2008. Country groups (below) were based on the 2008 categories.

According to this, China's extraordinary success has merely brought it to the top of the list of lower middle income countries. Many argue that China's exchange rate is undervalued. If we add 40% to China's GNI, which would bring it to $4116, the per capita figure still remains squarely in the middle income range. Although China is close to upper middle income, it is not anywhere near being a high income country.

Several years ago, Cambridge economist Ha-Joon Chang wrote a prize-winning book with the provocative title Kicking Away the Ladder. Chang's argument is that historically, as today's wealthy countries became rich, they used extensive state intervention. However, after they have climbed up that ladder, they "kick it away" by insisting that developing countries follow free market principles.

Less polemically, given China's still low-middle income economy, it is not surprising that all kinds of standards in China are also still low, even though in labor, environment, and safety, the government is starting to push standards up the ladder. We are starting to see a trickling down of the new rules and rhetoric on standards even in some of China's proposed projects overseas. Advocacy to increase this trickle is a great idea. But keep in mind that China is still a developing country, with standards and policies that reflect this status. It's not Norway, or even South Korea.